OCEAN BIO-CHEM, INC (NASDAQ:OBCI) Files An 8-K Entry into a Material Definitive AgreementItem 1.01. Entry into a Material Definitive Agreement
On August 31, 2018, Ocean Bio-Chem, Inc. (the “Company”) and Regions Bank entered into a Business Loan Agreement (the “Business Loan Agreement”), under which the Company was provided a revolving line of credit. Under the Business Loan Agreement, the Company may borrow up to the lesser of (i) $6,000,000 or (ii) a borrowing base equal to 85% of Eligible Accounts (as defined in the Business Loan Agreement) plus 50% of Eligible Inventory (as defined in the Business Loan Agreement). Interest on amounts borrowed under the revolving line of credit is payable monthly at the one month LIBOR rate plus 1.35% per annum, computed on a 365/360 basis. Eligible Accounts do not include, among other things, accounts receivable from affiliated entities.
Outstanding amounts under the revolving line of credit are payable on demand. If no demand is made, the Company may repay and reborrow funds from time to time until expiration of the revolving line of credit, at which time all outstanding principal and interest will be due and payable. The revolving line of credit expires on August 31, 2021. The Company’s obligations under the revolving line of credit are secured principally by the Company’s accounts receivable and inventory.
The Business Loan Agreement includes financial covenants requiring that the Company maintain a minimum fixed charge coverage ratio (generally, the ratio of (A) EBITDA for the most recently completed four fiscal quarters minus the sum of the Company’s distributions to its shareholders, taxes paid and unfunded capital expenditures during such period to (B) prior year current maturities of Company long term debt plus interest expense incurred over the most recently completed four fiscal quarters) of 1.20 to 1, tested quarterly, and a maximum “debt to cap” ratio (generally, funded debt divided by the sum of net worth and funded debt) of 0.75 to 1, as of the end of each fiscal quarter. For purposes of computing the fixed charge coverage ratio, “EBITDA” generally is defined as net income before taxes and depreciation expense plus amortization expense, plus interest expense, plus non-recurring and/or non-cash losses and expenses, minus non-recurring and/or non-cash gains and income; “long term debt” generally is defined as “debt instruments with a maturity principal due date of one year or more in length,” including, among other listed contractual debt instruments, “revolving lines of credit” and “capital leases obligations”; “prior year current maturities of long term debt” generally is defined as the principal portions of long-term debt maturing within one year as listed at the last quarter end of the prior completed four fiscal quarters; and “unfunded capital expenditures” generally is defined as capital expenditures made from Company funds other than funds borrowed through term debt incurred to finance such capital expenditures. The revolving line of credit is subject to several events of default, including a decline in the majority shareholder’s ownership below 50% of all outstanding shares.
The Business Loan Agreement also contains negative covenants restricting the Company’s ability to, among other things, create or assume indebtedness for borrowed money other than trade debt incurred in the normal course of business, create liens other than permitted liens (as defined in the Business Loan Agreement), acquire an interest in another entity or incur any obligation as surety or guarantor other than in the ordinary course of business.
Regions Bank previously provided a revolving line of credit facility to the Company, in the maximum amount of $6,000,000, which expired on August 31, 2018 and was replaced by the current facility. The $2,450,000 outstanding under the prior facility at August 31, 2018 remains outstanding under the current facility.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
The information in Item 1.01 of this report is incorporated herein by reference.
About OCEAN BIO-CHEM, INC (NASDAQ:OBCI)
Ocean Bio-Chem, Inc. is engaged in the manufacturing, marketing and distribution of a range of appearance, performance and maintenance products. The Company offers its services under the Star brite and Star Tron brand names within the United States and Canada. In addition, the Company produces private label formulations of its products for various customers and provides custom blending and packaging services for these and other products. The Company is also engaged in manufacturing, marketing and distributing disinfectant, sanitizing and deodorizing products under the Performacide and Star brite brand names. The products that the Company manufactures and markets include marine, automotive, recreational vehicle/power sports, outdoor power equipment/lawn and garden, disinfectants, sanitizers and deodorizers, and contract filling and blow molded bottles. The Company produces its products at the manufacturing facilities of its subsidiary, Kinpak, Inc., in Montgomery, Alabama.